By Steven L. Lubetkin
In your view, what are some of the critical issues facing the banking industry in New Jersey? Bosma: One of the biggest challenges to face bankers today, especially community bankers, is the interest rate environment. A few years ago, when short-term rates were low and the public was a little frightened of the stock market, low-cost deposits were easy to attract. The banking model of paying low rates on deposits and charging a higher rate on loans worked. In many cases, deposit generation outpaced loan growth. Times were good for banks. Then the Fed started raising the short-term rates. They did it 17 times, to a point where there is very little difference between short-term rates and long-term rates. Add to that a strong economy with the stock market at a record level resulting in customers having other choices as to where to place their money. Today, it’s very difficult to attract low-cost deposits. So, with the short-term rates similar to long-term rates, banks dependent on spread income are having a difficult time increasing or even maintaining profits.
Add to that the costs of new regulations; it’s very difficult to meet shareholder expectations. Over the last few years, significant new requirements have been legislated not because of irregularities by banks or bankers, but by others and the banking community has been included in the broad-brush legislation. A combination of Sarbanes-Oxley, the Patriot Act, new regulations (post 9/11) on the Bank Secrecy Act and the requirements to fund Federal Deposit Insurance again. All of those have costs attributed to them and have had a negative effect on bank earnings.
To get back to your question, we need some movement on rates set by the Fed, but that does not look like it will happen any time soon and banks need relief of the regulatory burden.
Is that something you see NJBankers taking a leadership role in articulating, advocating or taking any action?
Bosma: Most of the issues of regulatory relief are national issues, not confined to New Jersey. The lead on reforms is the American Bankers Association, and the New Jersey Bankers Association works very closely with the ABA.
McWeeney: My early impressions are that the New Jersey Bankers Association has been extremely effective in advocacy here in New Jersey and in Trenton, but we need to get more involved in Washington, with the ABA and even directly connecting with our congressional delegation. I see that as an opportunity for us to help our member banks more in that area.
Coincidently, we had our annual trip to Washington on June 5 and 6, where we had about 35 bankers visiting Washington for a day. We met with representatives of the ABA, the different regulators and we had a reception with the congressional delegation. These are the types of messages we need to deliver to them.
[New Jersey] Commissioner [of Banking and Insurance Steven] Goldman has been a very proactive commissioner, but particularly in the banking community he’s been very well received. He’s promoted new legislation that makes it easier to create interstate de novo branches. He’s working on that with Pennsylvania, New York and New Jersey. Our association has supported that. I think he’s just been a positive force for the industry and he’s someone who wants to help the industry, because he sees the connection between the banking industry and overall economic health in New Jersey.
Bosma: Another area where New Jersey Bankers Association has taken a leadership role is the issue of identity theft. Over the last few years the occurrences of secure information being compromised by retailers has risen. We are working with Commissioner Goldman to introduce legislation which will place the financial burden to fix the security breaches by retailers on the retailers. A number of states have already passed similar legislation.
McWeeney: Another thing that [the data security issue] does to the banks is not just the cost of replacing cards and notifying clients, but it could potentially damage a bank’s reputation, because we’re not allowed to point out that it was another party that had the security breach. There are costs associated with protecting your reputation and your brand.
John, how are you finding the difference between working for a large bank and your new role as head of the association?
McWeeney: When you work for an individual bank, particularly when you’re in a large institution and you’re in a line of business, you become very knowledgeable about your own line of business, but you don’t always have the big-picture view of what’s going on within the industry. Now that I’m in my association role, I’m much more involved in a lot of these regulatory issues that are affecting the banking industry than I was in my prior position.
So is there anything about that big picture that surprises you?
McWeeney: I think I was aware of the regulatory burdens, but as you start to see the actual costs involved and the impact that it has on a bank’s bottom line and returns, it is kind of a “wow” factor.
Roger, what changes in the market are making an impression on you as you begin your term as chairman?
Roger: I think it’s an interesting time in New Jersey banking. The banking landscape has changed with the consolidation that is taking place in New Jersey. TD Banknorth has acquired Hudson United and Interchange, North Fork Bank is now Capital One, The Bank of New York branches in New Jersey now have the Chase logo and that’s just a few of the acquisitions. The cycle continues with new bank charters replacing the banks that have consolidated.
A few weeks ago, John and I attended the New Jersey League of Community Bankers annual convention. One of the speakers at the convention said that there is a lack of qualified people to manage new bank charters. He said talent is lacking for CEOs, CFOs and senior lenders. This is an area where I think the New Jersey Bankers Association can provide help. We need to expand our education programs to provide the skills that are needed to fulfill those positions. To meet these requirements, the New Jersey Bankers Association has had discussions with neighboring banking associations to partner with them on advanced banking training.
John, you’ve been on the road a lot visiting member banks. Is that something you’re hearing about as you make these visits?
McWeeney: I probably have visited 12 to 15 banks in the first few weeks here on the job. There’s a real demand for talented people and experienced people. There seems to be a void between this generation of experienced bankers and the younger bankers coming along. It’s very expensive for some of the smaller community banks to hire that talent away from larger banks because of the cost. It’s also a challenge for the small community banks to provide the type of training that these individuals need to grow your own talent. Commercial credit training is one area that I hear quite a bit as a real need.
I think, in general, more leadership training is needed to develop the next generation of leaders within the New Jersey banking industry. I think that’s something that the association should play a major role in and take the lead on. I haven’t quite figured out what the solution is yet, but we need to develop some sort of leadership training program to expose bankers from different banks to each other, community banks to the large regional money center banks, and also to the community at large, to help bring them along and expose them to some of the broader big-picture issues, such as regulatory issues.
As the association, we need to come up with an effective and efficient way to do that because it’s not being done anywhere else. Our role is not to reinvent the wheel. If something is being done by a member bank or by another industry association, we don’t need to get involved and try to do it better if it’s working. But where there’s a void, where we can do something more efficiently than our member banks can do on their own, and it’s something that’s not being done in the market, then the association needs to step up and leadership training is one of those areas.
I also think there’s talent out there but all the dots are not being connected. The talent is out there and may not be fully aware of where the openings are, and vice versa – the institutions may not be aware of some of the players who are out there who would be willing to move. I’m in early-stage thoughts of how the association could be some sort of clearing house for connecting jobs and people.
What about all the de novo activity that’s going on? From your perspectives as chairman and president, what would you like to see happen in that area? You obviously would like to have more members; you would also like to have them be more efficient. What’s your personal take on consolidation/de novo development?
Bosma: We have seen a significant amount of new bank charters over the last few years. Like I said previously, there always seems to be new banks starting when bank consolidation occurs. I also believe that some of the new banks have a model of a rather short existence, to build some mass within the first five or six years and then sell the franchise. Also, we are seeing new banks chartered geared to a specific group. New Jersey continues to be the melting pot of the world with many ethnic centers around the state. A number of new banks have been organized to serve that specific niche.
McWeeney: I think what’s happening now in the cycle of de novos is they’re finding it to be a much more challenging economic and competitive environment than they may have experienced in the past. The amount of time it takes to get to break-even levels is extended, and the competition is very intense, so you really need to have a well-thought-out plan if you’re going to be successful. Also, from the association’s perspective, I think we can do more to help de novo banks in the early development stages to almost provide a roadmap for things they need to be thinking about and doing to incorporate and get approved and hire staff and find facilities. Today, I think we jump in after they’ve formed and they become a member. I think we should be there 12 months before that when they’re in the formation process. I want to work with our staff and some key partners to develop a program along those lines.
Bosma: The toughest job in banking is the president or CEO of a de novo bank. They have to buy the market share; they have directors who have, in many cases, expectations that are not reasonable.
What are your big objectives for NJBankers this year?
Bosma: To build the value of membership in the New Jersey Bankers Association, we need to strengthen our education programs. As I mentioned previously, we have had discussions with both the Maryland Bankers Association and the Pennsylvania Bankers Association on partnering with them on advanced banking education. We need to expand our affiliate membership. Each bank that is a member has vendors who would like access to other customers. Affiliate membership provides that access. So this year we will intensify our service corporation outreach.
McWeeney: To Roger’s point, we want to leverage the power and breadth of our membership by enabling our members to get better deals on offerings of things they utilize, like employee benefits and other types of insurance services. Also, while we’re very proud of the staff that we have in place today, we are going to look for opportunities to strengthen our team, to bring in talent and to take the New Jersey Bankers Association to the next level. It wasn’t just about bringing me in, but about strengthening the entire team.
What are you looking for in new affiliate members?
McWeeney: We want to work very closely with our member banks to identify all the vendors and partners they have, because we want to reach out to them and solicit them to become affiliate members. We’re going to step up our efforts to deliver something back to them in the way of value, to expose them to our membership, to help them promote their products and services. It should be a win-win.
Bosma: One of the critical success factors to our last convention was the support and contribution of our vendors and affiliate members. This venue provides a great opportunity for the vendors and affiliate members to interact with the bankers, showcase their products and develop relationships. Both John and I see this as very valuable to the association, our banks and our affiliate members, that we are reaching out to the affiliate members to brainstorm with them on how we can add value to their participation.
McWeeney: One of the key overriding themes we want to become more focused on going forward is that we exist to serve our members. Everything we do, every day when we come to work in the morning, should be about serving our members, both our bank members and our affiliate members, That’s why we exist and we can never lose sight of that mission.
Any other new initiatives?
McWeeney: Regarding our educational programs, we’re going to evaluate the full curriculum, the effectiveness of it. Are programs being well attended, are they being run efficiently from a financial perspective? But more importantly, are the members getting any benefit out of it? How do these programs compare to what else is out there in the marketplace? We do a lot of these in conjunction with the New Jersey League of Community Bankers; there’s also AIB, ABA and neighboring state bankers associations. We need programs that add the most value to our members while not being duplicative. So that’s one initiative to really take a look at.
I think we have a lot of opportunity to do things with individual bankers. Our name is the New Jersey Bankers Association, not the New Jersey Bank Association. Membership in our member banks doesn’t go deep or broad enough. It goes to the senior management ranks, but there are literally thousands of bankers in New Jersey who don’t connect with our association that are employees of our member banks. Women bankers, minority bankers and young bankers that need training. We need to connect with them and add value to their careers as bankers.
Another big theme is to reduce our dependency on bank member dues by growing the NJBA Service Corp., so that we generate revenue through programs that our member banks benefit from and also through improving our affiliate member programs. Over time, we want to become less dependent on member dues, and have our organization grow by the value that we provide and that people are willing to pay for.
For the benefit of someone reading this who may not be as familiar with NJBA Service Corp., can you describe some of the things that it does and that you want it to begin doing?
McWeeney: The primary thing it offers today would be employee benefit programs to member banks, so that a bank that needs to set up those programs can go through the association and we would connect them. We have brokers that we work with and they represent a number of carriers. The concept is that member banks would get more choices with their offerings and better prices because they’re working through us. Beyond that, I think there are many other services that we need to explore and develop. Flood insurance, title insurance, payment processing, asset management – everything the banks utilize. Is there a way for us, through our Service Corp., to do it more efficiently for our member banks? Obviously this might be geared more toward small and midsize community banks.
What role do you see NJBankers playing in the community?
McWeeney: Financial literacy is an area where I want to focus our association. With everything you hear today about abuses in mortgage lending, the subprime issue, for example, there’s a great opportunity for the association to take the lead here in New Jersey on financial literacy. We can be educating new citizens on banking products and services and making sure that they receive information in their language that is understandable, including working with regulators and others to improve upon financial disclosures that are used.
Now, when you read a disclosure, it’s like reading a legal brief; it’s too confusing. We can contribute to making disclosures simpler, by working with the banking commissioner, other regulators and the mortgage industry to eliminate some of these abuses that have taken place in that industry. We can also help educate young children in grammar school how to save and teach college students about how to properly use credit cards and other financial services. I think our industry, and the New Jersey Bankers Association in particular, should take the lead on this, because by developing educated consumers, we’re developing our future banking clients. It’s also the right thing to do as good corporate citizens and if we don’t do it, someone else will come in and tell us how we have to do it.
Many banks are already active in this area. How will NJBankers complement these efforts?
McWeeney: I think a lot of banks have had programs over the years to varying degrees. That’s where I think the association can do a better job, because we can cover the entire state with all the member banks, and if a program works we can institutionalize it by working with the Department of Banking and Insurance. A lot of the programs have been done by individual banks, and it’s tough to continue them year-after-year, because they don’t have enough mass. Or, the programs are done for, say, a month during the course of the year, and again, you need to institutionalize them and maintain them year-after-year in a consistent and efficient manner without placing a burden on the individual banks.
Roger, how big of an issue is technology for banking?
Bosma: The future of banking is technology. As the generations get older, we’re going to have less and less people going into the branch. The older generation, the “gray hairs” like myself, still want to go and see the teller. My kids, they probably will never see a teller, because they pay their bills by Internet, they get cash from the ATM and as the generations age, the significance of the brick and mortar is going to become less and less. It’s much more effective and efficient for me to offer my services over the Internet than through the branch.
Any closing thoughts on the state of the New Jersey banking industry, John?
McWeeney: I’ve been very impressed by the dedication and professionalism of the bankers throughout the state. These are passionate people who are very committed to serving their clients, their shareholders and their communities. I feel privileged to be a part of this great industry. The reception I have received has been great. Everyone has been very welcoming. I’m very excited about my new role and view myself as an ambassador for New Jersey’s banks. I’m going to do everything I can do to serve our industry and help make a difference.